Iceland cleared of violations in landmark online bank case

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Landsbanki, also commonly known as Landsbankinn, was the parent company of the bankrupt online Icesave.

By Andrew HigginsNew York Times
January 29, 2013

BRUSSELS — Iceland on Monday won a landmark case at a European court, ending an acrimonious legacy from the collapse of its banking system more than four years ago.

The court upheld the country’s refusal to promptly cover the losses of British and Dutch depositors who had put more than $10 billion in Icesave, the bankrupt online offshoot of a failed Icelandic bank.

In a judgment issued in Luxembourg, the court of the European Free Trade Association, or EFTA, cleared Iceland of complaints that it violated rules governing the protection of depositors drawn up by the European Union. While Iceland is not a member of the union, it is bound by most of its rules as a member of EFTA.

The case has attracted widespread attention because it touches on issues of cross-border banking that have been at the center of the European Union’s efforts to ensure the future stability of the region’s financial system.

Monday’s court ruling was a significant victory for Iceland. Unlike Ireland, Iceland declined to use taxpayer money to bail out foreign bondholders and depositors. This caused a bitter dispute with Britain, which used antiterrorism rules to take control of assets held in Britain by Icesave’s parent, Landsbanki.

Iceland’s government, in a statement by its foreign ministry after Monday’s verdict, said that Landsbanki had already paid out some $4.5 billion to Icesave depositors, covering nearly half of all initial claims by individuals, charities, and others in Britain and the Netherlands. The ministry said the bank would eventually reimburse the rest.

The case against Iceland was bought by the Surveillance Authority of the European Free Trade Association and revolved around interpretation of a EU directive requiring that deposits in the European banks be covered equally by deposit guarantee systems. Britain and the Netherlands supported the case.